May 14, 2009

Moral Courage from Edmund Andrews

Overextended and on the economic beat:

My Personal Credit Crisis: I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me.... Patty was brainy, regal, sexy, fiery and eclectic. She was one of my closest friends when we were both students at an American high school in Argentina. Back then, we would talk together about politics and books at a coffee shop every day after school. We were not romantic in those days and went our separate ways after high school. But each of us would go through bruising two-decade-long marriages, and we felt that sweet spark of remembrance and renewal upon meeting again in middle age.

After a one-year bicoastal courtship, Patty was about to move from her home in Los Angeles to Washington. We would need a home.... Silver Spring, Md.... $460,000....

The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777.... At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane. But this was unlike any other time in history. My real estate agent gave me the number of Bob Andrews, a loan officer at American Home Mortgage Corporation....

“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”... My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. What mattered more than anything, Bob explained, was a person’s credit record.... “Don’t worry,” Bob reassured me, saying what almost everybody else in real estate was saying at that moment. “The value of your house will be higher in five years. You’ll be able to refinance.”...

Patty’s re-entry into the job market was bumpy.... We were spending way more than we were earning.... We had very different ideas about money.... We were lurching from paycheck to paycheck, one big home repair away from disaster. Meanwhile, neither of us was paying attention to how easy our bank had made it to build up debt. The key was the overdraft protection — more accurately described as “bounced-check loans.” Every time I overdrew my checking account by even a few dollars, the bank would tap my MasterCard for $100, helpfully deposit the cash in my account and charge me $10 for the privilege.... Chase Bank had cold-called me to offer a “platinum” card with no interest charges for the first six months. I took them up on it and shifted $3,000 in debt from my old card onto the new Chase card. But instead of paying down the balance before the interest charges began, I let it balloon to $6,000. Chase had sent us blank checks that we could use to either pay bills or give ourselves cash advances. I dismissed them as a cheap trick to lure dimwits into borrowing more money. In March, I grabbed one of the checks and used it to pay down $1,000 on my more expensive credit card....

Patty had suddenly got the break that seemed to solve our problems. In November 2005, she was hired as a full-time editor at a nonprofit organization with a salary of $60,000 a year.... I felt foolish, ashamed and angry as I confessed to Bob.... “What we’re going to do is a two-step plan,” he announced.... The way Bob figured it, my monthly payment would be down to about $3,200 by the fall... at least $500 a month less than the combined total of what I was paying on everything right then. And mortgage interest, unlike interest on credit-card debt, is entirely tax-deductible.

The whole plan worked exactly as Bob had predicted.... We were still loaded with debt, but we weren’t paying 27 percent interest rates on our credit cards. Patty was earning a solid salary, and I was earning extra money working overtime at The Times.... [O]n Oct. 10, 2006, when Patty lost her job. “Don’t worry,” she said bravely. “This will not be like the first time I was looking for a job. I’ve learned so much since then, and I am going to find another job quickly.” In the meantime, she said, she could collect unemployment for six months. She would also cash out her retirement account, which had about $7,000 in it. By any measure, the loss of Patty’s job was a financial catastrophe. We hadn’t yet gone more than 30 days delinquent on the mortgage, thanks, in part, to $15,000 I had borrowed shamefacedly from my mother after Patty stopped working....

November, four years after buying the house, we finally crossed our personal Rubicon and fell 30 days behind on our mortgage. “The last thing Chase wants is to foreclose on your home,” JPMorgan Chase wrote us. It assured us that it wanted to “help” and was willing to evaluate us for a number of “alternatives.” If we didn’t “resolve” our payment delinquency, it politely warned, “you will lose your home.” I took a certain pride that I outlasted two of my three mortgage lenders. American Home, my original lender, collapsed overnight when the financial markets first froze up in August 2007. Fremont, my second lender, was forced out of the mortgage business by federal regulators. That left me with JPMorgan Chase, one of the few big banks smart enough to sell off most of the subprime loans it financed. It still serviced my loan, but it wasn’t on the hook if I defaulted....

When I first called Chase in October, a representative named Sarah said I didn’t qualify for a loan modification because I wasn’t yet 90 days past due.... I called Chase back in January, when I was 90 days past due. Another representative told me that I would automatically be evaluated for a loan modification. “You should just wait until you hear from one of our negotiators,” he told me politely.... I tried again in late March. “I’m sorry, but our analysts have been backed up,” yet another Chase rep told me, even more politely than the previous one. She said each analyst had about 500 distressed borrowers to deal with, and it had been taking about five weeks for customers to get a direct response. The delays seemed to be getting longer.

I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall...

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Moral Courage from Edmund Andrews

Overextended and on the economic beat:

My Personal Credit Crisis: I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me.... Patty was brainy, regal, sexy, fiery and eclectic. She was one of my closest friends when we were both students at an American high school in Argentina. Back then, we would talk together about politics and books at a coffee shop every day after school. We were not romantic in those days and went our separate ways after high school. But each of us would go through bruising two-decade-long marriages, and we felt that sweet spark of remembrance and renewal upon meeting again in middle age.

After a one-year bicoastal courtship, Patty was about to move from her home in Los Angeles to Washington. We would need a home.... Silver Spring, Md.... $460,000....

The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777.... At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane. But this was unlike any other time in history. My real estate agent gave me the number of Bob Andrews, a loan officer at American Home Mortgage Corporation....

“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”... My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. What mattered more than anything, Bob explained, was a person’s credit record.... “Don’t worry,” Bob reassured me, saying what almost everybody else in real estate was saying at that moment. “The value of your house will be higher in five years. You’ll be able to refinance.”...

Patty’s re-entry into the job market was bumpy.... We were spending way more than we were earning.... We had very different ideas about money.... We were lurching from paycheck to paycheck, one big home repair away from disaster. Meanwhile, neither of us was paying attention to how easy our bank had made it to build up debt. The key was the overdraft protection — more accurately described as “bounced-check loans.” Every time I overdrew my checking account by even a few dollars, the bank would tap my MasterCard for $100, helpfully deposit the cash in my account and charge me $10 for the privilege.... Chase Bank had cold-called me to offer a “platinum” card with no interest charges for the first six months. I took them up on it and shifted $3,000 in debt from my old card onto the new Chase card. But instead of paying down the balance before the interest charges began, I let it balloon to $6,000. Chase had sent us blank checks that we could use to either pay bills or give ourselves cash advances. I dismissed them as a cheap trick to lure dimwits into borrowing more money. In March, I grabbed one of the checks and used it to pay down $1,000 on my more expensive credit card....

Patty had suddenly got the break that seemed to solve our problems. In November 2005, she was hired as a full-time editor at a nonprofit organization with a salary of $60,000 a year.... I felt foolish, ashamed and angry as I confessed to Bob.... “What we’re going to do is a two-step plan,” he announced.... The way Bob figured it, my monthly payment would be down to about $3,200 by the fall... at least $500 a month less than the combined total of what I was paying on everything right then. And mortgage interest, unlike interest on credit-card debt, is entirely tax-deductible.

The whole plan worked exactly as Bob had predicted.... We were still loaded with debt, but we weren’t paying 27 percent interest rates on our credit cards. Patty was earning a solid salary, and I was earning extra money working overtime at The Times.... [O]n Oct. 10, 2006, when Patty lost her job. “Don’t worry,” she said bravely. “This will not be like the first time I was looking for a job. I’ve learned so much since then, and I am going to find another job quickly.” In the meantime, she said, she could collect unemployment for six months. She would also cash out her retirement account, which had about $7,000 in it. By any measure, the loss of Patty’s job was a financial catastrophe. We hadn’t yet gone more than 30 days delinquent on the mortgage, thanks, in part, to $15,000 I had borrowed shamefacedly from my mother after Patty stopped working....

November, four years after buying the house, we finally crossed our personal Rubicon and fell 30 days behind on our mortgage. “The last thing Chase wants is to foreclose on your home,” JPMorgan Chase wrote us. It assured us that it wanted to “help” and was willing to evaluate us for a number of “alternatives.” If we didn’t “resolve” our payment delinquency, it politely warned, “you will lose your home.” I took a certain pride that I outlasted two of my three mortgage lenders. American Home, my original lender, collapsed overnight when the financial markets first froze up in August 2007. Fremont, my second lender, was forced out of the mortgage business by federal regulators. That left me with JPMorgan Chase, one of the few big banks smart enough to sell off most of the subprime loans it financed. It still serviced my loan, but it wasn’t on the hook if I defaulted....

When I first called Chase in October, a representative named Sarah said I didn’t qualify for a loan modification because I wasn’t yet 90 days past due.... I called Chase back in January, when I was 90 days past due. Another representative told me that I would automatically be evaluated for a loan modification. “You should just wait until you hear from one of our negotiators,” he told me politely.... I tried again in late March. “I’m sorry, but our analysts have been backed up,” yet another Chase rep told me, even more politely than the previous one. She said each analyst had about 500 distressed borrowers to deal with, and it had been taking about five weeks for customers to get a direct response. The delays seemed to be getting longer.

I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall...